Dana Business report FY2006

Business Highlights

Financial overview

in
million dollars

FY2006

FY2005

Rate
of
change (%)

Factors

Overall

Net Sales

8,504

8,611

(1.2)

Sales decreased $107,
or 1.2%, from 2005 to 2006. Currency movements increased 2006 sales
by $94 due to an overall weaker U.S. dollar. Sales in 2006 also
benefited from net acquisitions, primarily the purchase of the axle
and driveshaft businesses previously owned by Spicer S.A., its equity
affiliate in Mexico. Excluding currency and acquisition effects,
the Company experienced an organic sales decline of $216, or 2.5%,
in 2006 compared to 2005. Regionally, North American sales were
down $239 in 2006, or 4.4%,principally due to lower production levels
in the North American light vehicle market. Sales in Europe increased
$260, mostly due to increases from net new business. In Asia Pacific,
sales declined significantly from 2005, by $147, due primarily to
expiration of an axle program in Australia with Holden Ltd., a subsidiary
of GM.

The organic
sales declines occurred in the segments of ASG. Production levels
of the North American light truck market, a major market for each
of the ASG operating segments, were down about 9% in 2006.

HVTSG

2,914

2,640

10.4

The Commercial
Vehicle segment is primarily focused on North America -where Class
8 heavy duty production was up
10% in 2006 and Class 5-7 medium duty production was up 9%. Its Off-Highway
segment, on the other hand, has significant business in Europe, as
well as in North America. Each of these markets remained relatively
strong in 2006.

Contracts
In January 2006, Ford has extended its contract with the Company to supply
the full-perimeter frame for the F-150 full-size pickup. The Company has
supplied the full-perimeter frame for the F-150 for more than 30 years.
Depending on the engine and transmission configuration, it also supplies
the transmission oil cooler, piston rings, and various gaskets and fluid-transfer
products for the Ford F-150.

In February 2006, the Company has been awarded a contract to continue
supplying full-perimeter frames for the redesigned 2007 Ford Expedition
and Lincoln Navigator, as well as the all-new Expedition EL and Navigator
L. The Company has been supplying the frames for Expedition and Navigator
since their introduction in 1997, and it also supplies the transmission
oil cooler, various gaskets, and fluid-transfer products.

In July 2006, the Company begun supplying cylinder-head cover modules
for the 3.0L Duratec V-6 engine appearing on the Ford Freestyle, Ford
Five Hundred, and Mercury Montego vehicles.

Acquisition
In July 2006, the Company announced that it and Desc S.A. de C.V. have
completed the dissolution of their Mexican joint venture. The closing
of this transaction provides the Company with full ownership of several
core operations based in Mexico, which will operate under Dana Holdings
Mexico, S. de R.L. de C.V., a new Dana subsidiary. The Company and Desc
dissolved their joint venture, Spicer S.A. de C.V., with the Company assuming
100-percent ownership of operations that manufacture and assemble axles,
driveshafts, gears, forgings, and castings in which the Company previously
held an indirect 49-percent interest. Desc, in turn, has assumed full
ownership of the transmission and aftermarket gasket operations in which
it previously held a 51-percent interest.

Restructuring
Consolidation, Divestitures and Realignment of Operation under the scheme
of Reorganization under Chapter 11 of the Bankruptcy Code:

-The Company has committed to the closure of certain locations and consolidation
of its operations into lower cost facilities in other countries or into
U.S. facilities that currently have excess capacity. These actions included
moving driveshaft machining operations from Bristol, Virginia, to its
recently acquired operations in Mexico and moving axle assembly operations
from Buena Vista, Virginia, to its Dry Ridge, Kentucky and Columbia, Missouri
facilities. The Company also began the process of closing three Sealing
and Thermal facilities in the U.S. and one in Canada, a Driveshaft facility
in Charlotte, North Carolina, and a Structures plant in Canada.
During the fourth quarter of 2006, the Company announced additional closures
of two Axle facilities in Syracuse, Indiana, and Cape Girardeau, Missouri,
and two Structures facilities in Guelph and Thorold, Ontario. In the first
quarter of 2007, the Company also announced closure of a Driveshaft plant
in Renton, Washington, which will be integrated into its Louisville, Kentucky
operation. The Company expects to close four additional facilities, with
announcements expected later in 2007.

-In September 2006, the Company announced that it and two affiliates have
entered into asset purchase agreements with Hendrickson USA, L.L.C., a
subsidiary of The Boler Company, and its affiliates for the sale of Dana's
trailer axle manufacturing business. Under terms of the agreements, the
buyers will acquire certain assets located in Lugoff, S.C., USA; Barrie,
Ontario, Canada; and Wuxi, China, which are used to manufacture heavy-duty
trailer axles and suspensions for an aggregate price of approximately
$38 million in cash. The buyer will also assume certain liabilities related
to the business. The transactions are subject to the approval of the United
States Bankruptcy Court for the Southern District of New York, which has
jurisdiction over Dana's Chapter 11 reorganization proceedings.

-In December 2006, the Company announced that it has entered into a stock
and asset purchase agreement with MAHLE GmbH, a leading supplier to the
automotive and engine industries, for the sale of its non-core engine
hard parts business. The agreement provides for MAHLE and certain of its
affiliates to acquire the equity and tangible and intangible assets of
the global operations comprising its engine hard parts business from the
Company and certain of its affiliates for an aggregate price of approximately
$157 million. Closing of the transaction is subject to the approval of
the United States Bankruptcy Court for the Southern District of New York,
which has jurisdiction over Dana's Chapter 11 reorganization proceedings.

R&D

R&D Expenditure

(million dollars)

2006

2005

2004

2003

2002

R&D Expenditure

221

275

269

252

248

R&D Structure
- The Company is integrating related operations to create a more innovative
environment, speed product development, maximize efficiency and improve
communication and information sharing among its research and development
operations.
-At December 31, 2006, ASG had four technical centers and HVTSG had one.

Technical Alliance
-The Company and Getrag have expanded their strategic alliance to jointly
develop electronically controlled limited- slip differentials and electronic
torque couplings. Under terms of the agreement, engineers from them will
be working in both the United States and Europe to develop advanced torque-
transfer products. The electronically activated devices will be used in
Dana axles and Getrag axles, transaxles, and power-transfer units, which
in turn will be applied in both light-truck and passenger-car platforms.

Product DevelopmentNewly designed driver interface:
In January 2006, the Commercial Vehicle Systems group of the Company has
enhanced its "Dana Spicer" Tire Pressure Control System (TPCS)
with a new integrated Driver Display Module (DDM) that, in conjunction
with new dash-mounted rocker switches, simplifies the selection of tire
pressures to maximize vehicle mobility under varying load and terrain
conditions. The newly designed driver interface supports two load modes
- Loaded and unloaded - and three terrain selections - highway, off-highway
and emergency. The highway mode permits high-speed travel on paved surfaces;
off-highway allows for efficient operation on unpaved surfaces; while
the emergency mode provides extremely low tire pressures to tackle exceptionally
poor terrains and grades that might otherwise be impossible to negotiate
without assistance. The six separate settings are designed to allow for
smooth, trouble-free navigation over a wide variety of road surfaces and
load conditions.

SmartWave TPMS
In February 2006, the Commercial Vehicle Systems group of the Company
launched "SmartWave TPMS" tire pressure monitoring system, which
resulted from last year's marketing agreement between the Company and
SmarTire Systems Inc. The system provides real-time tire pressure monitoring,
enabling the system to work on the road, not just when passing through
a stationary gate-reader or when someone is using a hand-held device.
The system communicates to off-board communication systems, sending real-time
pressure and temperature data to provide proactive maintenance scheduling
as required. The system alerts the driver via a warning lamp if a tire
deviates from the tire manufacturer's recommended pressure settings. Each
tire's condition can be graphically indicated on a dash display unit,
allowing the driver to see the current pressure of each tire.

Higher level of safety control:
In May 2006, the Company has started the sales activities based on new
technology proposals targeting at the next generation models of Japanese
automakers as development of its unique technologies to achieve a higher
level of safety control is in sight. They are powertrains and drivetrain
units as sensor-equipped cylinder head gaskets and highly shock-absorbing
propeller shafts. With these new technologies, the U.S. supplier plans
to achieve its mid-term objective of increasing the sales ratio of Japanese
automakers by three times to 30% and over, from the current level. Currently
Japanese automakers account for a little over 10% of its sales with approx.
1 billion yen. The company will boost the sales activities based on the
new products to expand business with globally growing Japanese automakers.
Advanced engine sealing technology:
In June 2006, the Company has begun production of an advanced engine sealing
technology featuring value-added electronic features. The product, supplied
to a major North American engine manufacturer, is a valve-cover gasket
that is fitted to an inline six-cylinder diesel engine that powers Class
2 and 3 trucks. Additionally, the Company has been selected to supply
the valve and breather cover for this engine beginning in 2007. The gasket
is unique in that it provides "windows" to power circuits for
the fuel injectors. Depending on the need, this type of gasket can also
provide power connections for solenoids, sensors, actuators, and glow
plugs. By using this technology with single or multiple connections, Dana's
electronic "window" gasket simplifies production by reducing
the number of components and lowering assembly time and costs. Other advantages
include multiple conductor sizes, integrated wiring harnesses, and an
increased resistance to heat extremes.